Because it's politically expedient. They know the political climate is currently hostile to them requesting H1Bs while doing layoffs. RTO lets them get another round of layoffs without calling them layoffs and avoid the bad PR.

Microsoft compensates less than other top tech companies and remote work aligns with their lifestyle-first approach to compensation. Being on the early end of RTO would have worked against the perception that Microsoft is "the tech company with good work life balance," but now that most other companies have done it first they can get away with it as just them following the industry trend.